Local revenue increases without ballot requests becoming more common for schools

Local revenue increases without ballot requests becoming more common

May 19, 2013

Written by

CentralOhio.com

For two decades, Licking Valley Local Schools have not gone to the ballot to ask for more money — but that doesn’t mean it hasn’t taken more from local taxpayers.

Although Superintendent David Hile credits the district’s cost-cutting efforts as the reason it’s been able to keep a levy off the ballot, the district also benefits from state law and previous board decisions that let it see moderate revenue growth.

The district, located east of Newark, is one of 210 in Ohio to be at the 20-mill floor. State law requires schools to collect at least 20 mills in property taxes for operating purposes, meaning schools at this base level see their tax revenues rise when property values increase. The district also is one of 184 in the state to levy an income tax, approved permanently in Licking Valley, which now allows the district to receive increased revenue as incomes rise.

Those factors are key because for much of the past several decades, local schools didn’t see much incremental growth in their revenue, even during times of rapid property value escalation. House Bill 920, passed in 1976, limited property tax growth based on property values to only the state-mandated 10 inside mills, which are charged to every resident without a referendum. The revenue from those mills is split among the schools and governments where that resident lives. School operational levies beyond those inside mills were frozen at the revenue generated in the first year.

For example, consider a 5-mill levy that generated $1 million in year one. Based on property value growth or new development, that same 5 mills would generate $1.2 million in year two. Instead of the school receiving the additional $200,000, the millage was dropped to a level where only $1 million was generated.

This forces districts wanting to keep up with inflation to go back to the ballot to ask for additional money, said Damon Asbury, director of legislative services with the Ohio School Boards Association. Despite that, he likened the state law to the “third rail” of Ohio politics because of its popularity.

“Nobody wants to touch (H.B.) 920,” he said.

Because of that, some districts work to get to the state’s floor so they can see those annual increases based on growth, but they also are subject to larger drops if property values plummet. Likewise, income taxes grow as incomes grow but fall during a recession.

In Licking Valley, for example, local revenue rose steadily from $5.1 million in the 2000-01 school year to $6.5 million in 2007-08. They dropped to below $6.3 million the next two school years during the Great Recession, but since have rebounded to $6.8 million in 2011-12.

Such potential growth is a large incentive for districts to settle at the floor and seek income taxes, Asbury said.

“More and more districts are trying to get to that 20-mill floor,” he said.

Hile said the district works daily to maintain costs, such as replacing two leaving teachers with one. This allows the district to give its employees raises without asking for ballot issues, he said.

“We just refuse to put ourselves in a situation where we have to go back and ask for more dollars,” he said.

However, the district in 2011 did make an internal move to increase its overall revenue. It moved one of its state-mandated inside mills to a permanent improvement fund for capital improvements. Because it was at the 20-mill floor, this move added about $200,000 annually for improvements while not reducing the district’s general fund revenue. State law allows such internal mill transfers as long as the district provides proper notice and conducts a public hearing, said Gary Gudmundson, of the Ohio Department of Taxation.

The district’s move, however, generated little fallout from residents, who appreciated its efforts not to seek increased levies throughout the years. More than 80 districts that year designated inside mills for permanent improvements.

In addition, the use of emergency levies has become popular. From 2005 to 2012, school districts placed more than 1,000 such levies on the ballot — more than 30 percent of all tax requests. Although the levies are limited to five years, they are not applied toward a district’s 20-mill floor. That means a district could continue to see growth on its base 20 mills while also receiving the revenue from the emergency levy.

State commissioner Joe Testa in 2010 wrote a paper for the conservative Buckeye Institute criticizing the expansion of such levies and calling for caps on how often they can be placed on the ballot.

“Real financial emergencies can exist, but the placement of a series of multiple emergency levies implies that the regular operating expense of the taxing authority is in a perpetual emergency mode,” he wrote. “The decision to pursue repeated emergency levies should require the declaration of “financial distress,” thereby subjecting them to a greater level of state oversight until the taxing authority has returned to more sound footing.”

Districts searching for more revenue largely have avoided a mechanism approved under Democratic Gov. Ted Strickland that would allow them to see annual growth without dropping to the 20-mill floor.

In Strickland’s final budget, the conversion levy concept was approved. The levy allows a district to combine its existing levies into one conversion levy. Under such a plan, which would have to be approved by voters, the first 20 mills of the levy essentially works as the state-mandated floor. This means that under a 30-mill conversion levy, a district would receive a fixed revenue amount from 10 mills, but the first 20 mills would be allowed to generate more revenue as property values increased.

The levy was attacked by the conservative Buckeye Institute as a permanent tax increase in the same paper by Testa. In calling for statewide property tax reform, Testa wrote conversion levies and other confusing types of levies should be eliminated. Greg Lawson, with the institute, said the levies would face long odds at the ballot box.

“Once people realize what it actually does, I think it makes it a hard sell,” he said.

Since their approval, however, only one Ohio school district has asked for a conversion levy. Margaretta Local Schools in Erie County put one on the ballot in 2010. It failed.

The complex formulas involved in the levies likely are the reason they haven’t been popular, Asbury said.

“I think the biggest reason is people just don’t understand it,” he said.